2015 Business Climate Survey

This year marks the 17th Annual AmCham China Business Climate Survey, and AmCham China is proud to have cooperated with Bain & Company this year to survey a record number of respondents, a total of 525 companies. The 2015 report highlights our member companies’ concerns regarding China’s changing regulatory and policy environment, their perceptions of the ongoing reforms, as well as the daily opportunities and challenges companies face in their operations.

Sector reports based on the survey are available to members for free (and for RMB400 to non-members) on our Business Center.

Summary

This year’s Business Climate Survey offers a unique and important view of the rapid changes in China’s economic, business, and regulatory environment and their impact on American businesses in China.

2014 Performance Snapshot:

Decelerating Top-Line and Bottom-Line Growth Slower revenue and profit growth in 2014 led to the most challenging year in recent history for many member companies. While three out of five companies reported higher revenues in 2014 than in 2013, two out of five reported comparable or lower revenues. In terms of profit margins, two out of five reported increasing margins, while three out of five held steady or reported declines.

Investing for Future Growth: Established Companies, Complex Choices

Despite the slow down in 2014, member companies continue to see growth opportunities, especially related to domestic consumption trends, the continuing rise of an affluent middle class and urbanization.

AmCham China members are well on their way to localizing their businesses and have invested significantly in local innovation in China. For example, a strong majority have Mainland Chinese in 75% or more of their top country management positions. In addition, nearly one-third of companies now derive more than half of their revenues in China from locally designed, developed, or tailored products and services. Meanwhile, many other companies use China as a base for global growth. Nearly half of companies in R&D Intensive Industries or Resources & Industrial Industries have established R&D centers in China, and almost 40% of these companies are using the centers not just for China, but also for a broader set of emerging markets.

For 2015, most companies have set organic revenue growth as a primary business objective, with 44% planning to launch new products or services, and 41% targeting new customer segments. Meanwhile, only 6% of companies list acquisitions or JVs as a primary objective. The key challenges to inorganic growth include difficulty obtaining credible information and a lack of attractive targets.

Although companies’ operations are more established in China than ever, many are now revisiting their China investment strategies. More than 30% of companies have no investment expansion planned in 2015, the highest rate since the recession of 2009. And while China remains a top-three priority globally for over 60% of members, more than 35% now view it as “one among many destinations” or “not a high priority.”

Solving Business Challenges: Human Resources and Regulatory Concerns

Challenges in China are on the rise, with a significant uptick in the number of companies reporting that the quality of China’s investment environment is deteriorating. Human resource concerns and inconsistent regulatory interpretation and unclear laws continue to top the list of challenges. On the positive side, corruption dropped from the fourth-largest issue in 2013 to the sixth-largest issue in 2014, and fell off the list of top ten challenges entirely in this year’s survey.

Human Resource Challenges

High labor costs continue to be the top human resource challenge, and increasing costs are impacting company strategies. As one example, an increasing number of member companies—15% in 2014—have moved or are planning to move capacity or investments outside of China. Shortages of qualified employees and managers also round out the list of top challenges. These shortages are further exacerbated by air quality issues, which in 2014 caused over half of surveyed companies to experience difficulty in recruiting senior executives to work in China. Resolving human resource challenges will remain a top priority for American businesses in China in 2015.

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The American Chamber of Commerce in the People's Republic of China is a non-profit, non-governmental organization whose membership comprises more than 3,300 individuals from 900 companies operating across China. The chamber's nationwide mission is to help American companies succeed in China through advocacy, information, networking and business support services. AmCham China is the only officially recognized chamber of commerce representing American business in mainland China. With offices in Beijing, Tianjin, Dalian, Shenyang and Wuhan, AmCham China has more than 50 working groups, and holds more than 250 events each year.